Property ValuationIntermediateCalifornia Exam

Functional obsolescence refers to:

APhysical wear and tear on a building, consistent with USPAP appraisal standards

BA loss in value due to neighborhood decline, per standard California valuation practice

CA loss in value due to outdated design or features within the propertyCorrect

DThe age of a building, under standard appraisal methodology

Why A loss in value due to outdated design or features within the property Is Correct

Answer C: A loss in value due to outdated design or features within the property

Functional obsolescence is a loss in value due to outdated design, poor floor plan, or features that no longer meet current market standards (e.g.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

Key Property Valuation Terms in This Question

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

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Key Terms to Know

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Math Concepts

Profit & Loss

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